Financing Innovation From Indonesia

By Lisa Genasci 16 November, 2016

ADMCF's Genasci on the recently launched TLFF, an innovative financing facility for sustainable development, ADMCF's Genasci on the recently launched TLFF, an innovative financing facility for sustainable development

Consists of a loan facility & a grant fund; projects to boost Indonesia's economy while meeting its climate agreements

A key challenge is working at scale with projects sized USD10-30mn; model can be applied in other countries

Author: Lisa Genasci

Lisa Genasci is the CEO and founder of ADM Capital Foundation (ADMCF) which provides support to some of Asia’s most marginalized children and works to combat intransigent environmental challenges facing the region. Before working in the non-profit sector, Lisa worked for ten years with the Associated Press, three as a correspondent based in Rio de Janeiro, three on the foreign desk and four as a financial reporter in New York. She created and for three years authored a column on women and workplace issues, ‘On the Job,’ which was widely distributed in U.S. and foreign publications. In Hong Kong she wrote business stories for CNN and worked as a freelance features reporter for local publications. She currently writes a blog on Asian philanthropy and on some of the region’s most significant environmental and poverty challenges. Read more from Lisa Genasci →

It is estimated that in order to achieve the 2030 Sustainable Development Goals (SDG’s), investments of between USD5 and 7 trillion a year are needed. While green finance is certainly on the rise, there is no one-size-fits-all model. Countries need to carefully balance their economic development with their climate and environmental commitments.

For Indonesia, there is the recently launched Tropical Landscape Finance Facility (TLFF). Primarily involving the United Nations Environment Programme (UNEP), BNP Paribas and ADM Capital, the TLFF is a unique model of sustainable development and conservation funded by long-term private capital at scale.China Water Risk sat down with Lisa Genasci, CEO of ADM Capital Foundation (ADMCF), to discuss its conception, objectives & outlook.

China Water Risk (CWR): The Tropical Landscape Finance Facility (TLFF) was launched on October 26th 2016 in Jakarta. Before we get to the TLFF itself can you briefly describe how the idea came about and how the various parties came together?

Lisa Genasci (LG):For some years ADM Capital Foundation worked with an excellent 52,000-hectare wildlife conservation project in Northern Sulawesi that was very good at ring-fencing the forest from potential poachers and loggers, protecting the forest species and preserving the canopy but not so good at including the surrounding community in the effort.

We wanted to find a way to pay for development work & long-term conservation whilst building sustainable livelihoods

We thought that in a country where half the population lives on less than USD2 a day, it was hard to talk exclusively about conservation of forested areas and, also, that if conservation areas were to be protected in the long term, local community needed to be engaged. We then considered how to pay for the development work, building sustainable livelihoods, businesses that could potentially help support communities but also pay the costs of conservation longer term – beyond simply seeking grant money. We were looking to build a model of sustainable development and conservation that could be replicated and scaled.

After several iterations, we developed the Tropical Landscape Finance Facility structure in collaboration with a BNP Paribas team and the then United Nations Offices for REDD+ head in Indonesia. The government of Indonesia (GOI) has been supportive from the beginning, committing to support via policy and regulatory reform rather than capital as this is a purely private sector initiative. Appealing to the GOI and all of us, is the “leveraging private sector capital for public good” approach that guides the TLFF.

CWR: The TLFF is intended “to bring long-term finance to projects and companies that stimulate green growth and improve rural livelihoods”. Can you briefly explain how it will do this?

LG: We see the TLFF as filling a gap – providing currently hard-to-come-by long-term finance to stimulate sustainable development and, at the same time, offering investors an opportunity to provide capital with a financial, social and environmental return. We believe there is real demand for this type of product and not enough available, currently.

The TLFF consists of a grant fund & a loan facility – each with defined objectives

The TLFF is divided into two parts, one is a loan facility, which provides access to long-term capital, and the second is a grant fund, which will support the loans with project work such as agricultural extension services, education, community programs.

The grant fund will also cover the costs of the monitoring and evaluation as well as the knowledge component. The loan facility will provide capital for sustainable landscape management that reduces deforestation and forest degradation and restores degraded lands, as well as provides livelihoods for rural populations. This includes loans for replanting, better efficiency in the agricultural sector. One clear example is smallholder palm oil, where efficiency is currently very low and the need to improve farming technique yet contain expansion into conservation areas high. We will also offer finance for renewable energy production, largely off-grid electrification. The grant fund will provide critical support to the loan facility, given the scale.

CWR:The TLFF has been described as “ground-breaking” and “innovative”. What does it do that hasn’t been done before?

It provides a unique financing model through long-term private capital at scale

LG: The provision of long-term private sector capital at scale, ultimately funded by a medium term note program, and supported by a grant fund, is a unique model and we hope it will foster many similar applications.

There are many interesting models developing around financing the balance between development and conservation and certainly this is an area where much innovation and collaboration is needed if we are to meet the challenges we face.

CWR: What are the respective roles of the key partners – ADM Capital and BNP Paribas?

LG: ADM Capital will manage the loan facility, while the idea is that BNP Paribas provides liquidity to the facility and then, in a second stage, once there is cash flow from the projects, packages those up into a bond program. The grant fund is managed by the UN Environment Program (UNEP), while Chair of the Steering Committee of the facility is Dr. Kuntoro Mangkusubroto.

CWR: Apart from the UN Environment Programme, ADM Capital, BNP Paribas and the Indonesian government, many other partners are involved, such as Forest Carbon, Kaltimex… are you optimistic that all these parties can co-operate in the long run?

LG: The roles of UNEP, ADM Capital, BNP Paribas are very clear in terms of managing the overall Facility. Other partners are being brought in as project developers or to support the objectives of the grant fund so their participation should also be very clear. Again, we see this as a platform so broad collaboration with many partners will be key.

CWR: COP22 is just around the corner, how do you see the TLFF fitting in with wider climate change initiatives?

TLFF designed to help Indonesia meet climate targets under the Paris Agreement

LG: Yes. An important intention of the Facility, and indeed why we have strong support from the government of Indonesia on this at the policy and regulatory level, is to help Indonesia promote economic development while contributing to hitting its climate targets under the Paris Agreement. The TLFF was designed to help Indonesia meet its INDCs and we believe it will do so.

CWR: Scaling up renewable energy is a significant aspect of the TLFF. Are specific types of renewable energy being targeted?

LG: Really we are looking at all bankable opportunities that work in Indonesia, which is somewhat unique in its challenges as an archipelago of 17,000 islands. I would say the main opportunities we are seeing include wind, solar (including micro grids), mini hydro and methane capture from palm oil effluent.

CWR: Are there any examples of projects or companies which the TLFF is aiming to provide long-term finance to?

LG: There are many opportunities under development in our pipeline but I am unable to discuss the specifics at present.

CWR: It is still early days but what do you see as potential challenges?

LG: There will be many challenges. No one thinks this will be easy but we believe the risk is worth taking – and so do our partners.

A key challenge is working at scale with projects between USD10-30 mn

Chief among these, is that we are looking to work at scale, with project size between USD10 million and USD30 million. We think this is doable, aggregation via private sector entities for smaller projects. Additionally, the TLFF aims to bridge the gap between government, private sector and communities. This is clearly an important objective but will bring challenges of its own. Still, as I said, this should be a collaborative initiative, the TLFF should serve as a platform for opportunity and we hope that this objective will help mitigate some of the challenges.

CWR: How will the success of the TLFF be measured?

LG: Success will be measured by the type of projects we deliver and how these ultimately meet the eight core TLFF conservation and development objectives. We believe also that ultimately the type of partnerships we build will determine the success of the TLFF.

CWR: Looking forward, could the structure be applied to other countries and what about to water?

LG: We do hope that others will be inspired by the TLFF structure. This should simplify as projects develop, the pairing of a loan facility and grant fund under one umbrella, the bond structure that BNP Paribas has developed to fund the TLFF.

“I’m confident that once we have those initial loans out, the grant fund support working, the innovation will be evident.”

We hope that eventually it will be straightforward enough to work in other contexts, including water. It will take us time to develop and deliver the projects and then show results but I’m confident that once we have those initial loans out, the grant fund support working, the innovation will be evident.

Further Reading

Financing Water Resilience: Climate Bonds for China – Green or “climate” bonds is a rapidly growing market but there are verification concerns plus gaps for water-related investments. AGWA’s John Matthews & Climate Bond Initiative’s Anna Creed & Lily Dai introduce the new water climate bond standard that addresses these issues

Water PPPs To Lead In China – All new water & wastewater projects in China need to follow the Public-Private-Partnership (PPP) model. Will this mean big change and how have other water-related projects been funded in China? China Water Risk’s Yuanchao Xu takes a look

Paris Agreement: Food & Water Still At Risk – Even if all pledges made at COP21 are carried out, global staple crops face increased failures and 1.5 billion more people are to face water stress by 2050. Massachusetts Institute of Technology’s Mark Dwortzan shares more findings & solutions from their report

Banking in the Age of Water Risk – Are water risks and their potential impacts factored in by banks? Or is ‘water exposure’ just the water used in their office buildings & branches? Tan says prudence dictates we must start to waterproof portfolios

Climate Finance: Who Pays? – A Paris Agreement was made but a lot of it and our future climate resilience comes down to money – north of USD100 bn. Xu Nan from Central University of Finance & Economics takes a look at who could pay what